JEFFERSON CITY - It was a disagreement on how to handle state tax credits that became the issue that blocked the special session of Missouri's legislature from reaching agreement on the larger package of business tax breaks proposed by the governor for economic development.
The governor proposed and the Senate adopted termination dates on tax credits, requiring periodic reauthorization by the legislature to continue a tax credit benefit. The House rejected what are called "sunsets"
The following are some answers to general questions about tax credits.
What is a tax credit?
- A tax credit amounts to a government IOU. It is an authorization from the state for the holder of the credit to use to reduce state taxes at some time in the future. Existing tax credits range from adoption expenses, donations to non-profit organizations to creating jobs, low-income housing development and renovating historic buildings. The low income housing and historic preservation tax credits are among the state's largest tax credits. Some tax credits are "transferable," meaning they can be acquired by one person or business and then sold to another.
Why do we have tax credits?
- Tax credits are meant to encourage donations to charitable organizations, spark development in communities or encourage various types of activities like adoption. They also help individuals dealing with extra expenses, like caring for family members, by crediting the money spent to their income tax.
What was the difference between the House and Senate on tax credits?
- Key members of the Senate, including it's top leaders, have argued that with the state facing cuts in state funding for education Missouri needs to scale back how much it loses in tax revenue for tax credits. The Senate adopted what is called a "sunset" that would terminate a tax credit program unless reauthorized by the legislature.
- The House voted to reject sunsets on two of the state's largest tax credit programs. The House speaker and other House members argue that if a tax credit program required approval by the legislature to be continued, any one member of the Senate could filibuster and kill the program without the Senate taking an actual vote.
How much does Missouri spend on tax credits?
- Missouri's government has been increasing the number of tax credits available to encourage economic development during the recession. Tax credits represent approximately 7.6 percent of Missouri's general revenue collections. In 2011, $545.1 million of tax credits was redeemed, compared to $102.7 million in 1998.
How much does Missouri financially benefit from tax credits?
- The exact dollar amount is difficult to calculate because tax credits are essentially a portion of state taxes that are not collected. By offering tax credits, however, individuals have more more spendable money and, in theory, more businesses and development is brought to Missouri. A recent report from the state auditor
What's the downside to tax credits?
- Acquiring a tax credit is not the final step, and many tax credits that are issued are not redeemed until several years later, making it difficult for the state to determine its actual tax-revenue loss from tax credits in any one year.
- Critics argue that the state cannot afford to rising loss of state tax collections when Missouri will have to make future budget cuts in education.
- Tax credits can be taken advantage of, used by some entities to make more profit rather than encourage certain types of projects.
What are some tax credits offered in Missouri?
- Some of the most well-known tax credits in Missouri are the Historic Preservation Tax Credit, Special Needs Adoption Tax Credit and Low-Income Housing Tax Credit.
- There are also several for specific industries such as credits for family farms, wine and grape or qualified beef producers.
- You can apply for tax exemptions from a portion of property, utilities or income taxes if you meet that credit's eligibility criteria.
Where can I find out if I am eligible for any tax credits?
Tax Credit Payments
|Revenue lost from tax credits:
||Fiscal Year 2002
||Fiscal Year 2008
||Fiscal Year 2011|
|Corporate Income Tax
|Individual Income Tax
|Low-income/senior citizen housing credit
|Historic Preservation tax credit
Information from the Internal Revenue Service and Missouri Department of Revenue websites.